How Health Reform Increases Unemployment

March 15, 2012

Because of its extensive regulatory impact and pervasiveness in burdening American businesses, the Patient Protection and Affordable Care Act (PPACA) threatens to undermine the still-fragile American jobs recovery. Companies will face disincentives to hiring and will be encouraged to move more workers from full-time to part-time in order to bypass some of the law's most harmful measures, says Diana Furchtgott-Roth, a senior fellow with the Manhattan Institute.

According to an announcement by the Labor Department, the unemployment rate held steady at 8.3 percent in March 2012.

However, this fails to capture a number of potential American workers that, discouraged by the poor employment prospects, left the labor force over the course of the recession -- labor force participation rate has declined from 66 percent in January 2009 to 64.9 percent today.

Including these workers, the unemployment rate climbs to an astounding 14.9 percent.

Enter the PPACA. The new tax, which will be phased in in 2014, will impose a $2,000-per-employee tax on businesses employing 50 workers or more if they fail to make available generous, government-approved health care plans.

Under this system, and allowing for financial provisions that attempt to ease the transition from 49 to 50 workers, businesses that do hire that 50th worker will face an additional $40,000.

The $2,000 tax will amount to 15 percent of average annual earnings in the food and beverage industry and 9 percent in retail trade.

Businesses can avoid the tax by moving full-time employees to part-time work -- this will exacerbate the problem that in January 2012 over 8 million people were already working part-time because they could not find full-time jobs.

Furthermore, the hardest-hit populations will be those with the fewest skills. This is because the penalty is a higher proportion of their compensation than for high-skill workers, and employers cannot take the penalty out of employee compensation packages. This primarily hits younger workers.

Of the 2 million adults who found jobs over the past year, 1.7 million are over 55 years old, and 300,000 are between age 25 and age 55.

The unemployment rate for adult workers with less than a high school diploma is 12.9 percent.

Teens face an unemployment rate of 23.8 percent.

The imposition of the ACA will further weaken the market for these workers.